The vault of the Federal Reserve Bank of New York, located six floors below ground level at 33 Liberty St., contains $63 billion worth of an investment that commands attention in troubled times: gold.
It is an otherworldly kind of place. Workers clank around wearing magnesium-plated shoe covers designed to protect their feet from being crushed if one of the heavy gold bars were to be dropped.
Gold reserves from 60 foreign countries are stored for safekeeping within this impenetrable vaul, whose walls and bars are painted a bright blue. Built on solid bedrock, it is even further down than the city’s famous subway trains.
Gold bars remain just as heavy as when I first carefully lifted one with both hands here more than two decades ago, but their value is much less.
An ounce of gold, worth $850 during my first visit, is now valued at around $300, which is up from a 12-month low of $257. Little wonder that one-third of gold reserves has been gradually withdrawn over 20 years. Countries find better financial investments or may have decided America’s safety advantage for storage isn’t what it once was.
While no longer an unquestioned hedge in tumultuous times, gold still stages rallies. Gold-oriented mutual funds gained 35 percent in the first quarter of this year, compared to the average stock mutual fund’s weak 0.2 percent increase. They’ve outperformed the average stock fund in five of the last six quarters. Gold-oriented funds invest in stock of companies that mine gold or explore to try to find gold. Prospects of these stocks–tied to supply, demand, their industry and expectations–often beat the performance of the actual metal. Last year an ounce of gold was up less than $3, while gold stocks rose nearly 25 percent.
“The extended Afghanistan involvement, talk of going into Iraq next and continued violence between Israel and Palestinians feed into the wartime uncertainty that sends people fleeing to storehouses of value such as gold,” said Don Cassidy, research analyst with Lipper Analytical Services, which tracks the nation’s mutual funds.
The history of gold the past two decades consisted of upward runs lasting three months to more than a year, followed by lethargic periods of three to five years, Cassidy noted. During a 22-year disinflationary period, gold lost a lot of its clout. Yet in the first quarter of this year, the stocks Harmony Mining (HGMCY), Gold Fields Ltd. (GOLD) and Newmont Mining (NEM) boosted the U.S. Global Investors Gold Shares fund to a 52.41 percent gain.
“The last time gold peaked in price was 1993-1994, but all gold funds have drifted downward in total assets since then, mostly because the government went to a balanced budget,” explained Frank Holmes, chief investment officer for U.S. Global, whose Investors World Gold Fund was up 49.72 percent. “The driving factor lately has been the move to deficit spending, including the post-Sept. 11 military build-up.”
The investor strategy of keeping 5 percent of investments in gold is designed to lower volatility and increase portfolio performance because it runs contrary to the market, he said.
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“Mergers and acquisitions in the gold sector benefited the stocks we own,” added Charles de Vaulx, portfolio manager for First Eagle SoGen Gold Fund, up 50.64 percent in the first quarter. “There’s also growing investor demand for gold due to the banking problems in Japan and Argentina.”
While most of the quarterly top performers invested in gold, the No. 1 fund didn’t. The $1.43 million American Heritage Fund (AHERX) grabbed the top spot with a 62.50 percent gain by having most of its portfolio in the stock of Senetek Plc (SNTK), a maker of products for skin care and treating erectile dysfunction.
The following gold-oriented funds were close on that fund’s heels in the quarter, dominating the list of top funds, according to Lipper:
– U.S. Global Investors Gold Shares (USERX), San Antonio; $30 million in assets; no load; $5,000 minimum; 800-873-8637; up 52.41 percent.
– First Eagle SoGen Gold (SGGDX), New York; $24 million; 5 percent load; $1,000 minimum; 800-334-2143; up 50.64 percent.
– U.S. Global Investors World Gold (UNWPX), San Antonio; $50 million; no load; $5,000 minimum; 800-873-8637; up 49.72 percent.
– Tocqueville Gold (TGLDX), New York; $36 million; no load; $1,000 minimum; 800-697-3863; up 45.91 percent.
– Gabelli Gold (GOLDX), Rye, N.Y.; $33 million; no load; $1,000 minimum; 800-422-3554; up 45.43 percent.
– Van Eck International Investors Gold Class A (INIVX); New York; $137 million; 5.75 percent load; $1,000 minimum; 800-826-1115; up 45.23 percent.